Evening Star Pattern: What It Is, What It Means, and Example Chart

What Is an Evening Star?

An evening star is a stock price chart pattern that's used by technical analysts to detect when a trend is about to reverse. It's a bearish candlestick pattern that consists of three candles: a large white candlestick, a small-bodied candle, and a red candle.

Evening star patterns are associated with the top of a price uptrend, signifying that the uptrend is nearing its end. The opposite of the evening star is the morning star pattern, which is viewed as a bullish indicator.

How an Evening Star Works

A candlestick pattern is a way of presenting certain information about a stock. It represents the open, high, low, and close price for the stock over a period of time.

Each candlestick consists of a candle and two wicks. The length of the candle is a function of the range between the highest and lowest price during that trading day. A long candle indicates a large change in price and a short candle indicates a small change in price.

The evening star pattern is considered to be a very strong indicator of future price declines. Its pattern forms over three days:

1. The first day consists of a large white candle signifying a continued rise in prices.
2. The second day consists of a smaller candle that shows a more modest increase in price.
3. The third day shows a large red candle that opens at a price below the previous day and then closes near the middle of the first day.

Special Considerations

The evening star pattern is considered to be a reliable indication that a downward trend has begun but it can be difficult to discern amid the noise of stock-price data. Traders often use price oscillators and trendlines to help identify it reliably and to confirm whether an evening star pattern has in fact occurred.

The evening star pattern isn't the only bearish indicator despite its popularity among traders. Other bearish candlestick patterns include the dark cloud cover and the bearish engulfing. Traders have their own preferences regarding what patterns to watch for when they want to detect trend changes.

Example of an Evening Star Pattern

The following chart provides an example of the evening star pattern:

The three days depicted here begin with a long white candle indicating that prices have risen from significant buying pressure. The second day also shows a rise in prices but the extent of the increase is modest compared to the previous day. The third day shows a long red candle in which selling pressure has forced the price to around the midpoint of the first day.

These are the tell-tale signs that an evening star pattern has occurred. Technical analysts trading this security would consider selling or shorting the security in anticipation of an upcoming decline.

The Bottom Line

It's a good idea to employ various indicators to help you predict price movements but the evening star pattern can be a solid tool. It's particularly useful in identifying downward trends but it can admittedly be a bit difficult to pin down. Options like trendlines and oscillators can help and don't overlook the value of a broker's advice and assistance.